Mitigation Costs Model

Mitigation costs & emissions trade model  

The model calculates the tradable emission permits, the international permit price and the total abatement costs, making full use of the flexible Kyoto mechanisms like emissions trading, using Marginal Abatement Cost (MAC) curves. MAC curves reflect the additional costs of abating the last ton of CO2-equivalent emissions and, in this way, describe the potential and costs of the different abatement options considered. The model uses aggregated permit demand and supply curves derived from MAC curves for the different regions, gases and sources. The permit demand and supply curves are used to determine the equilibrium permit price on the international trading market, its buyers and sellers, and the resulting domestic and external abatements for each region, using the same methodology as Ellerman and Decaux (1998) and al. (1999). These schemes can include constraints on imports and exports of emission permits, non-competitive behaviour, transaction costs associated with the use of emissions trading, less than fully efficient supply (related to the operational availability of viable CDM projects) and the banking of surplus emission allowances.

Apart from the advantages of least-cost permit allocation, abatement cost determination and emission trading assessment, simple models based on MAC curves are also faced with a number of limitations. First of all, they cannot take into account carbon leakage, or technological spillover effects. Another disadvantage is that MAC curves only represent the direct cost effects, not the various linkages and rebound effects due to the economy; i.e. there is no direct link with macroeconomic indicators such as GDP losses. Furthermore, MAC curves are commonly taken as given, but in reality, may shift over time or be dependent on the abatement efforts in other countries. Finally, emission reductions do not lead to structural changes, which results in an unaffected baseline.

MAC curves
MAC curves of FAIR region and country model. The MAC curves used in the calculations for energy- and industry-related CO2 emissions were determined with the energy model TIMER 2.0 (van Vuuren et al., 2007) by imposing a carbon tax and recording the induced reduction of CO2 emissions. The MAC curves for carbon plantations were derived by using the IMAGE model (Strengers et al., 2008). MAC curves from the EMF-21 project (Weyant et al., 2005) were used for non-CO2 GHG emissions. These curves have been made consistent with the baselines used here and made time-dependent to account for technology change and removal of implementation barriers over time (Lucas et al., 2007)

MAC curves of FAIR EU model
The bottom-up marginal abatement costs curves for all EU countries based on the GENESIS 2.0 database (Blok et al., 2003)

References

• MNP References
• External References